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Posted in Industry Trends, Newsworthy

If you make your living renting apartments located in Canada’s downtown cores, as Minto Apartment REIT does, you were in the wrong industry when the pandemic struck two years ago.

Two of your most important customers — students and immigrants — stayed home. Downtowns lost their cachet overnight. And your ability to raise rents was severely constrained by the Ontario government’s move last year to freeze most rents last year. This year hikes are capped at 1.2 per cent.

Yet, the message from Wednesday’s conference call hosted by Minto CEO Michael Waters was that the worst was over — that business may be close to pre-pandemic levels by mid-year.

A key metric tells the tale. A shade more than 95 per cent of the company’s 7,500-plus rental suites were occupied in the fourth quarter of 2021, marking the third straight quarterly increase since the low mark of 91 per cent. Waters said he expected to continue filling his apartments, thanks in part to the federal government’s robust immigration targets of 400,000-plus annually and the return to more normal downtown lifestyles. In 2019, 98 per cent of Minto’s apartments were fully occupied, so there’s still some distance to travel.

Nevertheless, Waters reckons it’s just a matter of time. Another thing in his favour, he pointed out, was the vast gap between rent increases and housing affordability. For instance, the average rent last year for the company’s nearly 3,100 Ottawa apartments was $1,542 per month, up just seven per cent from 2019. Over the same time period, residential resale values in Ottawa surged 45 per cent to $782,000.

For those who can no longer afford to buy homes, renting or condo living are looking relatively more attractive.

And, despite government-controlled rents for existing tenants, Minto has a number of ways to increase revenue. For instance, the company can up prices for new leases and for suites that have been upgraded. Minto last year renovated 367 suites at a cost of nearly $50,000 each. The payoff was the ability to charge an extra $4,465 per year each.

The company is also building new apartment and retail complexes for which it can charge market rates. A $91-million re-development at Fifth Avenue and Bank Street will add 163 suites and retail outlets by the end of next quarter. Minto is also investing in a $123-million project adding 227 apartments along Beechwood Avenue and Barrette Street in east Ottawa by 2024.

Since 2018, when $200 million was raised in an initial public offering, Waters has snapped up thousands of new apartments and expanded Minto well beyond its Ottawa roots. At the IPO, 71 per cent of the company’s 4,279 apartments were located in Ottawa. By the end of 2021, the ratio had slipped to 41 per cent, thanks to the addition of nearly 1,800 apartments in Montreal and more than 1,150 in Toronto.

Minto recorded $123.5 million in revenue last year from its various properties — down marginally from 2020, but up substantially from $104.4 million in pre-pandemic 2019. That’s the influence of the apartment conversions and acquisitions. It is also generating plenty of cash to pay for distributions to investors.

Those fortunate enough to acquire units at the IPO price of $14.50 have done well. Based on Wednesday’s closing price of $21.02, they would have seen compound average gains in excess of 10 per cent per year, excluding an annual dividend currently just short of 2.3 per cent.

Of course it all depends on your perspective. In the first week of March 2020, days before governments began locking down the economy in response to the then-unknown COVID-19 virus, Minto was trading at $28. It will have to gain 33 per cent to get back to where it was.

All Waters can do is keep his eye on the multiple strands of the business. If the pandemic really is in the end game, the price of those Minto units will come along for the ride.


Story by: Ottawa Citizen